Consumer Spending Slows More Than Expected
Canada’s retail sales dropped 0.6% in January to C$69.4 billion ($48.31 billion), exceeding analysts’ expectations of a 0.4% decline, according to data released by Statistics Canada on Friday.
In volume terms, sales shrank 1.1%, marking the steepest decline in two years. The slowdown follows an upwardly revised 2.6% increase in December, which had been boosted by holiday shopping and a temporary sales tax break that expired in mid-February.
Automotive and Grocery Sales Lead the Decline
Three out of nine retail subsectors saw declines in January:
- The automotive parts and dealers sector experienced a 2.6% drop.
- Supermarkets and grocery stores saw sales shrink by 2.5%.
- Food and beverage retail sales also declined.
Despite the broader decline, the gasoline and fuel vendors sector provided a boost, with a 3.2% revenue increase during the month.
Impact of Tariffs and Economic Outlook
The Bank of Canada has warned that consumer spending is likely to weaken further due to tariffs imposed by U.S. President Donald Trump. While the direct effects of the levies may not fully materialize until March, uncertainty surrounding trade policies could begin affecting consumer confidence as early as February.
“The tax holiday will continue to add some noise to the data through March—just in time for tariff uncertainty to hit consumer sentiment,” said Shelly Kaushik, senior economist at BMO Capital Markets.
February Sales Indicate Further Decline
A preliminary flash survey of half the usual respondents suggests that February retail sales likely declined by 0.4%, according to Statistics Canada.
Retail Sector’s Role in Economic Growth
Retail sales account for nearly 40% of total consumer spending in Canada, making them a key early indicator of GDP growth. The sector played a significant role in sustaining Canada’s economic expansion in the third and fourth quarters of 2024, but the latest data suggests a cooling trend.